Dual Income Properties

Dual Income Properties – The true cost of two rents

A dual income property (sometimes also called ‘dual-key’) is one that has two rental streams under the one roof. Usually, these are either a 3 or 4 bed unit, accompanied by another full self-contained 1 or 2 bed unit, with a separate entrance. They are usually on one title and cannot be sold off separately like a duplex that is strata titled.

They are marketed with high yields and attract investors looking for strong cash flow in an investment. However, is this cash flow strong enough to outweigh some of the various flaws in this investment strategy?

Dual Income Properties

Dual Income Investment Model

Firstly, let’s take a look at a typical cash flow scenario on a dual income property.

Example – 3 bed + 1 bed unit dual income. Augustine Heights, QLD
Purchase Price – $555,000

Yearly Income and Expenses:
Combined rent – $590/w or 5.5% yield = $30,680
Expenses (running costs, interest etc) = $31,429

Yearly Cashflow:
Pre-tax cashflow = – $749 p.a
Post-tax cashflow = + $5,819 p.a
(Basic assumptions – 10% cash deposit, 5% interest rate, $100k income)

Now that we have a clearer picture of the reality of the cash flow on a dual income let’s look at the other half of the investment equation, capital growth.

Dual Key Investment Considerations

To maximise the capital growth of an investment over time, the property needs to have an inherent demand from the local owner occupier market. After all, it is this segment that competes for property and pushes prices up in an area. The question for a dual income design is how appealing this is to this market? You may get the occasional family who wants to care for an elderly member in the separate accommodation. However, is this the largest section of the market that you need for capital appreciation? These designs are ultimately catered towards investors only, and unless the rental yield is increasing dramatically and improving the cash flow then investors won’t be attracted to paying more than what was paid for the property initially. So, the couple of thousand dollars a year after tax cash flow now looks pretty meagre compared to another property achieving an average 10% growth p.a, plus a similar cash flow.

One of the other downsides to this strategy is the inability to strata title, or sell each dwelling individually. They must be sold together. The bank, therefore, must value them as such on one title, and often a valuer will use other more traditional 4 bed houses as a comparable in our example above. As the cost to build a dual income (extra kitchens etc.) is greater than a typical 4 bed house there is often a large shortfall in valuation between what is being paid and what the valuer assesses its worth. Not only does this cause initial purchase issues with significant extra funds required to make up the shortfall, but it will also stay an issue for future resale and again limit the potential market of buyers and the capital appreciation of the investment. In the above example, the valuation came in $80,000 lower than the purchase price which the investor had to fund out of their own pocket! Without the capital growth of other styles of property investment, it will take a long time to get those funds back.

Here at Sound Property we feel an investor can achieve better returns (both cash flow and capital appreciation) through a variety of other strategies.

To discuss this strategy with us further, please contact a Client Manager at Sound Property on 1300 655 899 or admin@soundproperty.com.au

This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.